School board seeks answers on bonds

POWAY  Poway school board members attempted to delve further Monday night into the report on an investigation of the district’s use of capital appreciation bonds to finance a school construction program, questioning the investigator on district processes, the roles of various advisers, and what risks were known.

The report was released Jan. 21 at a board meeting.

The investigation, by Robert Price of ESI International, found no evidence of wrongdoing in the use of capital appreciation bonds that eventually will cost taxpayers nearly $1 billion.

With capital appreciation bonds, the principal and interest payments are deferred, and ultimately might yield a high debt ratio, as in the case of the Poway Unified School District.

Superintendent John Collins announced the investigation in September, following criticism and scrutiny after media reports stated that the final cost for borrowing $105 million for construction would be $981.6 million over 40 years.

Board members had the option to submit questions to Price in advance, and trustees also took turns with questions Monday night.

For trustee Kimberley Beatty, the board’s newest member, questions focused on the district’s process from the beginning for bond transactions and on the fiduciary responsibility of the various lawyers and financial advisers involved — whether it’s to the district or to investors.

Other than the bond underwriters, all legal and financial advisers had a responsibility to the district, Price said.

Questions were raised, too, on whether advisers were paid on a contingency or fee-for-service basis.

Outside criticism has included accusations that the district didn’t receive proper advice, a claim rejected in Price’s report.

“Did we have anyone, in fact, solely compensated on unbiased pure advice, or is everybody only making money if the (bond) deal gets done?” board President Marc Davis asked.

Price said that, for the most part, all advisers and consultants were working on contingency — meaning, they would get paid only if a deal was completed, calling that typical in bond transactions.

He said there were some flat-fee or one-time payments.

Former school board member Jeff Mangum also spoke at the meeting, presenting the findings of a report from his independent “Bond Committee,” formed by six community members to study the bonds and make recommendations.

Mangum said the committee believes the board wasn’t adequately advised when it came to making decisions on the capital appreciation bonds.

In its report, the committee also said the community wasn’t adequately informed about the potential cost of the bond before the board approved the issuance in May 2011.

As for what’s next for the district, Davis said officials will focus on two areas: implementing a series of “best practices” for financing, and determining whether action can be taken with the bonds to reduce the long-term costs.

“First is, what have we learned from this, what do we want to do better,” Davis said, noting that community involvement is one aspect that should be improved.

Beatty said Tuesday that she was hoping for more detailed answers from Price.

She would like to see a “peeling back of all the layers of the procedures” to ensure that there’s “accurate oversight every step of the way.”

She is looking forward to coming up with recommendations, but “before moving on, you really have to exhaust where the failings went on and don’t feel we’ve done that. … I still want to have more of a complete picture of the processes before I make recommendations on changes.”